A dividend yield fund is an equity mutual fund that mainly buys shares of companies paying relatively high dividends for their share price. It is still an equity fund: it rises and falls with the stock market. This guide explains the category, what SEBI requires, and how five of the larger funds compare on data to 28 September 2026. It compares funds; it does not recommend any of them.
What SEBI Requires of a Dividend Yield Fund
SEBI's categorisation circular of 26 February 2026 sets two rules for the category:
- The scheme should predominantly invest in dividend-yielding stocks. SEBI does not set a fixed percentage for this.
- At least 80% of total assets must be in equity and equity-related instruments. Before February 2026 the floor was 65%.
The remaining up to 20% can go into other equity, money market instruments, gold and silver instruments permitted by SEBI, or InvITs, within the usual limits. A common misreading is that 80% must be in "high dividend" stocks. The 80% is the total equity floor; the dividend tilt is described only as "predominantly".
The same circular requires scheme names to match the category name. That is why several funds were renamed: "ICICI Prudential Dividend Yield Equity Fund" is now ICICI Prudential Dividend Yield Fund, and "Templeton India Equity Income Fund" is now Franklin India Dividend Yield Fund. If you see "equity income" in older articles, it usually refers to this category.
How Dividend Yield Works
Dividend yield is the dividend a company paid over the past year divided by its current share price. A ₹100 share that paid ₹4 in dividends yields 4%. Companies with high yields tend to be mature businesses with steady cash flows and less need to reinvest. A high yield can also mean the share price has fallen because the market expects trouble, so fund managers look at whether the dividend can be sustained, not just at the yield.
When the fund receives dividends from the companies it owns, the money goes into the fund and raises its NAV. You do not receive those dividends directly unless you choose the IDCW option, and even then the payout comes out of the fund's NAV.
Five Dividend Yield Funds Compared
| Fund (current name) | 1Y | 3Y | 5Y CAGR | 10Y | TER (BER) | AUM |
|---|---|---|---|---|---|---|
| ICICI Prudential Dividend Yield Fund | −3.70% | 13.87% | 15.71% (17.96%) | 14.83% | 0.76% (0.57%) | ₹6,711.60 Cr |
| HDFC Dividend Yield Fund | −1.14% | 10.12% | 12.89% (14.80%) | n/a (launched Dec 2020) | 0.87% (0.71%) | ₹5,587.41 Cr |
| Aditya Birla Sun Life Dividend Yield Fund | 2.07% | 11.24% | 12.73% (14.54%) | 12.27% | 1.94% (1.15%) | ₹1,474.80 Cr |
| Franklin India Dividend Yield Fund | −1.63% | 10.87% | 11.99% (13.19%) | 14.16% | 1.37% (1.06%) | ₹2,279.81 Cr |
| Sundaram Dividend Yield Fund | −4.16% | 8.85% | 9.14%* | n/a | 1.25% (1.00%) | ₹806.55 Cr |
Direct plan, growth option. Returns are point-to-point from AMFI NAVs to 28 September 2026; 3-, 5- and 10-year figures are annualised. The 5-year figure in brackets is to 31 August 2026. *Sundaram's AMFI NAV history starts only from its January 2022 merger with the Principal scheme, so its 5-year figure is from Groww (a secondary source). TER is the total expense ratio of the direct plan (24–27 September 2026); BER, in brackets, is SEBI's base expense ratio, which excludes statutory levies. AUM as of 31 August 2026.
For context, the Nifty 500 TRI returned 9.14% a year over five years and 12.67% a year over ten years to 28 September 2026.
The table is not the whole category. Kotak, SBI, Tata, UTI, LIC, Baroda BNP Paribas and WhiteOak also run dividend yield funds.
Reading the table
- One month changes the 5-year number by about two points. For the four funds with full AMFI history, the 5-year return to 31 August was 1.2 to 2.3 points higher than to 28 September. Point-to-point returns depend heavily on the start and end dates. Compare funds over the same dates, and look at several periods rather than one.
- Costs differ a lot. Total TER ranges from 0.76% to 1.94% for direct plans. Over ten years, a one-point gap in annual cost is a large share of the return.
- Fund managers matter. ICICI: Mittul Kalawadia and Sharmila D'Silva. HDFC: Gopal Agrawal and Priya Ranjan. Aditya Birla Sun Life: Pavas Pethia, since May 2026. Franklin: Ajay Argal, Rajasa Kakulavarapu and Sandeep Manam. Sundaram: Shalav Saket and Siddarth Mohta. A recent manager change means the long-term record was built by someone else.
You can check any of these funds yourself over any period you choose in the mutual fund analyser, which uses AMFI NAVs.
What These Funds Actually Hold
It is easy to assume dividend yield funds are mostly public sector companies. Current portfolios show that is true for some funds and not for others. As of 31 August 2026:
- ICICI Prudential Dividend Yield Fund: top five holdings were HDFC Bank (6.9%), ICICI Bank (6.7%), Sun Pharma (5.4%), Axis Bank (4.3%) and Reliance Industries (3.9%).
- HDFC Dividend Yield Fund: top five were ICICI Bank, HDFC Bank, Axis Bank, Larsen & Toubro and Bharti Airtel.
- Sundaram and Franklin: public sector names such as SBI, NTPC, Coal India, ONGC and Power Grid feature near the top. Franklin's top ten also includes Infosys and ITC.
So two funds in the same category can behave quite differently. One built around large private banks will move more like a large-cap fund; one built around public sector energy and utility companies will follow that sector's cycle. Before investing, read the latest monthly factsheet and check how much it overlaps with funds you already own. Our note on portfolio overlap explains how to measure it.
How to Judge a Dividend Yield Fund
- Returns over several periods, against the benchmark. Compare 3-, 5- and 10-year returns with the Nifty 500 TRI or the fund's stated benchmark, using the same end date for every fund.
- Total expense ratio of the direct plan. Use the total TER, not the base figure, since that is what comes out of your returns. Our guide to direct vs regular plans shows how much the plan choice adds.
- Portfolio. Look at the top ten holdings and sector weights. Do they fit with what you already own?
- Manager tenure. A long record means more if the same person built it.
- Size. Very small funds can have higher costs; very large ones are rarely a problem in a category that buys mostly large companies.
Our general guide on how to choose a mutual fund covers these checks in more detail.
Where the Category Tends to Fit
Dividend yield funds are often used as one part of an equity portfolio, alongside a flexi-cap or index fund, to add a tilt toward mature, cash-generating companies. Investors who want equity exposure but are uncomfortable with growth-heavy portfolios sometimes look at them. They are not a substitute for debt. With 80% or more in shares, they can fall sharply in a market downturn.
The category tends to lag when markets are led by fast-growing companies that pay small dividends, and it tends to hold up better when investors favour steady cash flows. How large that difference is varies from cycle to cycle.
How Dividend Yield Funds Are Taxed (Tax Year 2026-27)
With at least 65% in Indian listed shares, these are equity-oriented funds for tax:
- Units held more than 12 months: 12.5% on long-term gains above ₹1.25 lakh a year (the limit covers all your equity funds and shares together).
- Units held 12 months or less: 20%.
- IDCW payouts: added to your income and taxed at your slab rate. The fund deducts 10% TDS if your IDCW from it exceeds ₹10,000 in the year.
Add 4% cess, and surcharge if it applies. Full details are in our mutual fund tax guide.
Growth plus SWP vs IDCW for income
Many people choose a dividend yield fund for regular income and then pick the IDCW option. For someone in a higher slab, that is usually the less tax-efficient route: every rupee of IDCW is taxed at slab. With the growth option and a systematic withdrawal plan, each withdrawal is part capital and part gain, and only the gain is taxed, at capital gains rates. The SWP calculator shows how long a corpus lasts at a given withdrawal rate, and the SIP calculator helps plan the build-up phase.
